By Zusha Elinson on March 15, 2011 – 4:33 p.m. PDT
It was going to be like “the McDonald’s of marijuana.”
Less than two years ago, a group of high-powered Bay Area potrepreneurs came together to form CannBe, a consulting and lobbying shop that planned to set up medical marijuana franchises across the country.
But it turns out that CannBe can’t be all that.
The for-profit business has all but shut down. It’s no longer taking clients. Most of the staff members have been laid off. And its website is no longer up.
Robert Jacob – the CEO of CannBe who also runs a dispensary called Peace in Medicine in Sebastopol – said in an interview Tuesday that the hodge-podge of ever-changing medical marijuana regulations across city, county and state lines made it a difficult business to maintain.
“It was harder that we anticipated to keep the organization in the black with so much regulation in flux,” said Jacob. “I think with any developing industry, the pioneers in that process, especially one as complicated as medical cannabis, end up trying out different avenues that don’t always work out.”
The demise of CannBe is the latest sign that entrepreneurs jumped too quickly into the so-called “Green Rush” during the run-up to a vote on Proposition 19, the initiative that would have legalized recreational marijuana use in California. The East Bay Express reported last month that WeGrow, an East Oakland hydroponics store slated to be the “Wal-Mart of weed,” was losing money and preparing to close its doors following Prop. 19’s defeat. A stern warning from the U.S. Department of Justice has also put plans to permit large-scale pot farms in Oakland on ice, leaving would-be pot farmers out in the cold.
“It was a bubble,” said Dale Gieringer, the director of the marijuana advocacy organization California NORML. “It was sort of driven by the Prop. 19 campaign – a lot of people bet some chips on that and it didn’t come through.”
Last April, CannBe was featured in a New York Times article about how the pot industry was gaining respectability. Stephen DeAngelo, a CannBe co-founder who runs the largest dispensary on the West Coast, Harborside Health Center, told The Times that he wanted to help make pot seem “safe, seemly and responsible.” He said that CannBe would expand the clean, above-board business model across the country and eventually be recognized as “the McDonald’s of marijuana.”
The model was based on Harborside in Oakland, Peace in Medicine and SPARC, which is run by another CannBe co-founder Erich Pearson.
For a while, CannBe’s consultants lobbied local governments to change laws on behalf of their clients. They were involved in working on new regulations in San Jose, which had previously been a Wild West of pot dispensaries.
They helped dispensaries get started, assisting with the permit process and giving them a business model to use. CannBe hired 17 staff members and had up to 30 people, including contractors, on the payroll at its height. It rented office space in Oakland. It hired interns for $10 an hour this summer.
But Jacob said that new taxes made profit margins thinner for dispensaries and the variety of regulations made it difficult to do business efficiently. Now, the staff is down to a skeleton crew of five contractors who are working with the CannBe’s remaining clients for the time being.
NORML’s Gieringer said he doesn’t think demand for marijuana is sinking. However, an irrational exuberance combined with market saturation led to a bubble that is now popping.
“When you see all these secondary activities and secondary businesses, then you sort of know that things were getting frothy,” Gieringer said.